Alaska Supreme Court upholds rule requiring rent on expired oil leases during appeals

If you want to fight the state over an oil lease that has run out, you have to keep paying rent on it while you fight. The Alaska Supreme Court said Friday that rule is constitutional.

The decision ended five North Slope leases claimed by Daniel Donkel, who had stopped paying and argued the requirement amounted to a "pay to play" scheme that made his right to keep litigating contingent on a nonrefundable check.

The leases sit in the Badami Unit, formed in 1995 east of Prudhoe Bay. Savant, LLC asked in November 2012 to expand the unit by seven leases. The Division of Oil and Gas approved two and denied five in March 2013, then reversed itself entirely in January 2021, pointing to an out-of-date work plan and no data linking the reservoirs inside the unit to those outside it.

While that played out, the leases expired. All six primary terms ran out between 2017 and 2019. Brooks Range Petroleum Corporation kept paying the rent until 2021 and then stopped. Donkel, appealing alone by then, refused to pay at all.

The court held that the rule "does not prevent a lessee from filing an appeal; it simply requires payment to retain an interest in an expired lease during an appeal." Donkel never argued he could not afford it. The state said the rent compensates it for holding acreage off the market and discourages appeals that never end. Regulations allow a partial refund, prorated by month and acreage, if the final decision does not extend the lease.

The one exception is a lease with a well already capable of producing in paying quantities. Those do not terminate for nonpayment.

The court was harder on the state elsewhere. It called the department's delay "likely" unreasonable, noting that officials offered no explanation for taking more than five years to send the 2013 appeal back for reconsideration. It found no due process violation, though, because Donkel could not show the delay hurt him. He was ordered to pay the state's attorney's fees.

A sixth lease, in which Donkel holds a royalty interest, survives for now. The court upheld the denial of unitization, but whether that lease has a producing well is still before the commissioner, and that answer determines whether it has terminated too.